Did a mill buyer's assumption of the seller's liabilities count as taxable consideration, allowing no offset for unpaid open accounts?

Plain-English summary

A taxpayer protested the tax measure assigned to the sale of a mill. The taxpayer argued that the auditors had not valued an oral lease and had not offset unpaid open accounts against the mill's value.

Tax counsel was willing to consider evidence about the oral lease, which appeared to have little or no value. But if the purchasers assumed all outstanding mill obligations, sections 6006(a) and 6012 treated those liabilities as consideration and gross receipts from the tangible-property sale.

On that understanding, the auditors correctly refused to offset unpaid open accounts against the taxable measure.

Citations and references

• California Revenue and Taxation Code sections 6006(a) and 6012 (as cited)
• Redacted protest to a determination concerning a mill's selling price, an oral lease, unpaid open accounts, and assumed obligations — protest and determination not reproduced in the official PDF
• Unidentified mill sale, oral lease said probably to have little or no value, purchasers' assumed outstanding obligations, and unpaid open accounts — sale agreement, lease, valuation, liability and account schedules, payments, and audit records not reproduced in the official PDF
• Invitation to submit lease-value evidence and expectation of a further response — no evidence, later correspondence, hearing, Board action, redetermination, collection, refund, appeal, or outcome supplied
• Official Annotation 295.0820's business sale, assumed seller obligations, taxable-gross-receipts treatment, no open-account offset, and Nov. 24, 1953 date — annotation generalizes the source's conditional mill-sale understanding and omits the redacted protest and determination, oral-lease issue and unresolved valuation, invitation for evidence, missing records, reliance status, and later outcome and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0820.pdf

Original ruling text

295.0820

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 24, 1953

Re:
Dear Mr.
We have considered your protest to the determination levied against the above named taxpayer. The first item of your protest is that no provision was made for the sale of a lease as a part of the selling price of the mill. It is our understanding that the sellers had only an oral lease, which we think probably had little, if any value. However, we will consider such evidence as you may wish to present as to the value of that lease. The second item in your protest is that the auditors did not allow unpaid open accounts as a set off against the mill value. It is our understanding that the purchasers of the mill assumed all of the outstanding obligations against that mill. If that is correct, the assumption of those liabilities would be a part of the measure of tax under Sections 6006(a) and 6012. You will note that "sale" is defined as including any transfer of title or possession of tangible personal property for a consideration, and "gross receipts" includes the total amount of the sale price valued in money whether received in money or otherwise. It is our understanding of the law that the assumption of the liabilities of a seller by a buyer constitutes consideration and the amount of the assumed liabilities would be the gross receipts from the sale. Accordingly, we think our auditors were correct in not allowing as a set off unpaid open accounts. Trusting that we will hear from you in the near future, we are

Very truly yours,

John H. Murray
Assistant Tax Counsel
JHM:tj
cc: Santa Rosa - Compliance